Tempur-Pedic Slammed with 45 Percent Drop in Second-Quarter Net

LEXINGTON, Ky.-Declining sales combined with falling margins and rising expenses to send Tempur-Pedic's bottom line plummeting in its fiscal second quarter, ending on June 30.

Net income for the specialty mattress maker fell 45.1 percent to $29.1 million. Net sales slipped 3.7 percent to $329.5 million, including a drop of 8 percent in North American mattress sales.

In a conference call to industry analysts yesterday, Mark Sarvary, Tempur-Pedic's president and CEO, said changes in the North American competitive environment "had an adverse effect on our performance." Specifically, Sarvary cited new offerings from competitors of premium mattress products, plus the support these companies gave in terms of on-air and in-store marketing and incentives.

Gross margin declined 225 basis points to 50.7 percent. Operating expenses leaped 21.5 percent in dollars and 753 basis points as a percentage of sales, to 36.2 percent--primarily the result of a 23 percent increase in selling and marketing expenses.

Addressing Tempur-Pedic's poor quarter, Sarvary told the analysts that the company has launched several initiatives to improve its competitive stance. The company will debut a number of new products at next week's Las Vegas Market that will be differentiated from other products in the specialty category, and that will raise average unit selling prices.

Second, Tempur-Pedic has begun a review of its consumer and wholesale price, its advertising program and its other consumer and customer programs meant to drive growth. Third, the company is continuing its commitment to advertising to consumers both in-store and on television, with new copy to support its products.

"Our strategic goal...is unchanged," Sarvary said. "We intend to be the world's favorite mattress and pillow company, and we are as committed to that as ever."